With the Budget looming, has George Osborne missed his chance to balance the books?
Kallum Pickering, senior UK economist at Berenberg, says Yes.
As if he ever had much of a chance in the first place. If the precedent of consistently missing his targets year after year isn’t enough, the numbers speak loud and clear. In the first 10 months of this fiscal year, George Osborne has rattled through 90 per cent of his borrowing target, leaving just £7bn for the final two months. In the same months last year, he had to borrow twice that much. It’s not impossible to achieve the target, just highly improbable. Slowing growth in the first quarter will hit tax revenues and only add to his challenge. The bigger question is how he proposes to meet his surplus target by 2019-20? Downward revisions to GDP growth will slash at his projected revenues. Amid all the Brexit bickering, the chancellor would do well to force through any major cuts. Unexpectedly lower gilt yields will help him find some recipe to save face on the day. But when 2020 comes, he will likely fall short. He usually does.
David Whitaker, managing economist at Cebr, and a former HM Treasury and HMRC economist, says No.
The chancellor should not tighten fiscal policy further – and anyway, we expect the deficit to fall from £78bn this year to £65bn in 2016-17. Globalisation gives him a great chance to cut taxes and actually raise more revenue over the medium term, all while maintaining his deficit target. Having found himself that cutting the additional rate of income tax from 50p to 45p raised an extra £8bn, we calculate that he could now raise a further £12bn by 2021 by lowering it to 40p. Cutting corporation tax too would boost growth, place pressure on tax avoiders and make overseas competitors work harder to attract investment. In addition, cutting Stamp Duty would yield more from a tax which artificially limits property transactions, depressing the rental housing supply. In 1997 the UK ranked fourth globally in the World Economic Forum Tax Competitiveness Index. Now we’re 54th. Yes, the chancellor can “balance the books” while reforming the UK’s distortive tax system.